Analysis of Today’s First-Time Home Buyer

April 25, 2019

Despite some obstacles that first-time home buyers face when starting their home search, a recent study from the Federal Reserve Bank of New York suggests the share of first-time home buyers has remained stable over the past 17 years. On average, first-time home buyers make up a little less than half of total home buyers on the market, 46% in 2016. To help lenders and other real estate professionals cater to first-time home buyers, the New York Fed released this analysis of today’s first-time home buyer and their specific needs.

First-time home buyers take out smaller mortgages.

As expected, first-time home buyers tend to take out smaller mortgage loans than repeat buyers. Data shows this margin is also widening year-after-year. In 2000, the average new purchase mortgage balance for a first-time buyer was $117,000 and the average new purchase mortgage balance for a repeat buyer was $143,000, a $26,000 difference. In 2016, the average new purchase mortgage balance for a first-time buyer was $213,000 and the average balance for a repeat buyer was $273,000, a substantial $60,000 difference. Inventory constraints leading to rising home prices has reduced the share of available for-sale inventory first-time home buyers can afford. The ripple effect of Baby Boomers staying in their homes longer limits the amount of move-up homes available, leaving Gen Xers in their starter homes longer, and Millennials competing over fewer options. Home builders tend to build larger more profitable homes but may start shifting to smaller starter homes as this trend continues.

First-time home buyers tend to have lower credit scores than repeat buyers.

The credit score is comprised of payment history, amounts owed, length of credit history, credit mix, and new credit. Younger first-time home buyers tend to have lower credit scores than repeat buyers for a number of reasons. Their credit history is shorter, they may not have as diverse a mix of credit, and they may have not yet established a positive repayment history. In 2000, the point range between first-time home buyers and repeat buyers was 35 points. In 2016, that spread was hardly changed, at a range of 37 points.

This statistic may be surprising to some, considering first-time home buyers are likely to be more recently graduated than repeat buyers. With more and more Americans opting to continue their education, student loan balances have grown proportionately. In 2000, the average student loan balance for both first-time home buyers and repeat buyers was about $13,000. In 2016, the average student loan debt for first-time home buyers was $29,000, significantly less than the average student loan debt for repeat buyers, which was $42,000.

The average age of first-time home buyers is falling each year.

As first-time home buyers are getting younger, repeat buyers are getting older. In 2000, the average age of a first-time home buyer was 37.9 years old. In 2016, the average age dropped to 35.4 years old. For repeat buyers, the average age in 2000 was 44.7 years old, and by 2016 the average age had risen to 47.6 years old.

Despite speculation that first-time home buyers are struggling, the data may tell a different story. There are more down payment assistance and low down payment mortgage options on the market to cater to today’s first-time home buyer. If you are a first-time home buyer or just interested in exploring your options, please let me know and we can review the best course of action for you.